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Single Stock Futures as a Substitute for Short Sales: Evidence from Microstructure Data

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  • Bartley R. Danielsen
  • Robert A. Van Ness
  • Richard S. Warr

Abstract

We examine how the introduction of single-stock futures impacts short sale costs and short interest levels in the underlying spot market. We find that short selling in the underling securities declines, after futures are introduced, the cost of borrowing stock for short sales declines and the available unborrowed supply of lendable shares increases. These results are consistent with futures exchanges providing a low-cost substitute market for establishing short positions. Microstructure evidence also suggests that the lower cost and greater ease of short selling via futures markets draws informed traders from the spot market. Copyright (c) 2009 The Authors Journal compilation (c) 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Bartley R. Danielsen & Robert A. Van Ness & Richard S. Warr, 2009. "Single Stock Futures as a Substitute for Short Sales: Evidence from Microstructure Data," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1273-1293.
  • Handle: RePEc:bla:jbfnac:v:36:y:2009-11:i:9-10:p:1273-1293
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    Cited by:

    1. Bohl, Martin T. & Klein, Arne C. & Siklos, Pierre L., 2014. "Short-selling bans and institutional investors' herding behaviour: Evidence from the global financial crisis," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 262-269.
    2. repec:pje:journl:article14wini is not listed on IDEAS
    3. Grundy, Bruce D. & Lim, Bryan & Verwijmeren, Patrick, 2012. "Do option markets undo restrictions on short sales? Evidence from the 2008 short-sale ban," Journal of Financial Economics, Elsevier, vol. 106(2), pages 331-348.
    4. repec:wsi:rpbfmp:v:17:y:2014:i:03:n:s0219091514500192 is not listed on IDEAS

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